• Exports and imports growth expanded 1.1% and 4.4%, respectively, in April

• Driven by depreciation in Ringgit amid weaker demand

• We maintain our 2019 exports growth forecast of 3.0-4.0% y-o-y

Highlights

In April, Malaysia’s exports and imports expanded by 1.1% y-o-y (Mar: -0.5%) and 4.4% y-o-y (Mar: -0.1%) respectively. As a result, trade surplus contracted to RM10.9bn (Mar: RM14.4bn). YTD-Apr, exports and imports contracted 0.4% y-o-y and 1.0% y-o-y respectively.

During the month, expansion in exports growth was mainly attributed to the expansion in LNG (+26.3% y-o-y); petroleum products (+22.3% y-o-y) and E&E products (+3.9% y-o-y) which offset the contraction in crude petroleum (-34.6% y-o-y) and crude palm oil (-17.3% y-o-y).

The expansion in imports was due largely to growth in intermediate goods (+20.3% y-o-y); consumption goods (+18.9% y-o-y) and capital goods (+5.7% y-o-y).

Our comments

In April, exports growth beat the Bloomberg consensus estimate of -2.1% y-o-y, registering a positive growth after two consecutive months of contraction.

On a seasonally adjusted (SA) m-o-m basis, exports growth expanded by 9.5% (Mar: +7.4% SA m-o-m) to RM86.8bn. However, the 3-month moving average growth for exports contracted by 1.3% y-o-y (Mar: -0.6% y-o-y), indicating that Malaysia’s exports performance still remains subdued.

Nevertheless, exports value continued to grow (Apr: +2.1% y-o-y vs Mar: +1.9% y-o-y) as Brent crude oil price averaged higher during the month (Brent- Apr: USD71.6 per barrel vs Mar: USD67.0 per barrel). Meanwhile, the Ringgit’s depreciation to RM4.12 per USD (Mar: RM4.08 per USD) has also indirectly improved the attractiveness of Malaysia’s exported goods during the month.

On the other hand, the weaker Ringgit acted as a double-edged sword as well, contributing towards the larger rebound in imports growth. All imported goods (consumption, intermediate and capital) were more expensive, with unit value of import increasing by 2.3% y-o-y (Mar: +0.9% y-o-y).

Meanwhile, the exports growth of E&E manufactured goods remained resilient in April, expanding by 3.9% y-o-y compared to a contraction of 1.9% y-o-y in the previous month. This was in tandem with the increase in Malaysia’s PMI from 47.2 in March to 49.4 in April. However, the latest PMI data showed a slight decrease to 48.8 in May, indicating that demand for Malaysian manufactured goods has deteriorated, which will likely affect exports growth negatively in the upcoming months.

Globally, the headwinds arising from the US China trade war still persist, with a high probability of escalating further. Recently, the US has expanded its protectionist focus onto India and Mexico as well. Assuming that the tension between the US and China prolongs and more countries will be added into its sphere of protectionism policies, global trade volumes will likely continue to suffer during the year.

However, the impact on Malaysia’s exports growth remains mixed, as the trade war could divert demand of goods in countries that are affected by US’s tariffs to possibly benefitting Malaysia instead. Hence, we maintain our 2019 full-year exports forecast at 3.0-4.0% y-o-y (2018: +6.8% y-o-y).

Source: Alliance Research - 4 Jun 2019